Spring 2020, I think we would all agree, might well mark the nadir for clients in terms of access to high LTV mortgages, certainly in the last decade and probably not since the very darkest days of the Credit Crunch.
Through last March, April and May, advisers and first-time buyer clients who only had a 5% deposit were effectively scraping the barrel in terms of product choice. Plus, these products were only attainable if you had access to the Bank of Mum & Dad or you had someone who would act as a guarantor. The pickings at 95% LTV were slim indeed.
And, let’s be honest, that was a situation which didn’t really change throughout the rest of 2020. The housing and mortgage markets recovered relatively quickly, fuelled by the pent-up demand, and boosted by the stamp duty holiday, but in terms of access to high LTV loans, there was little in the way of significant change.
Things are somewhat different now, hugely boosted by the Government’s guarantee scheme, but also capitalised upon by many different lenders who have gained significant confidence from greater levels of competition, which mean they will not be swamped and over-run with business should they release a 95% LTV product.
We shouldn’t underestimate how important that is to the lending fraternity, none of whom want to be hung out to dry, so to speak, by being the only lender standing in a perennially popular mortgage space.
Hence, with each new entrant that works their way into, or back into, high LTV lending, there is a greater chance that more will follow. In the month or so after the Government made its announcement regarding the guarantee, we saw the numbers inching up into (and past) double figures and that momentum has grown.
A quick review of the market, using the Nationwide House Price average for the UK of £242,382, which would require a 5% deposit of £12,119, means that (at the time of writing) borrowers have access to over 130 products and that number is rising on weekly basis.
What will also be of interest to advisers, market-watchers and (no doubt) clients is the types of lenders that are leading the way. Many might have thought that those lenders utilising the Government scheme would be heading the best buy tables at 95% LTV but nothing could be further than the truth.
Using those figures above on a mortgage comparison site, we can see that the deals returned in numbers one to 10 are all from building societies. From the Darlington offering a sub-3% deal at 95% LTV fixed for five years, to the Mansfield, Loughborough, Newbury, Buckinghamshire, Coventry, Hinckley & Rugby, Bath and Newcastle societies – all are now back in this high LTV space, fulfilling their remit to help first-timers onto the ladder.
Of course, these societies are not part of the Government scheme but are either using private mortgage insurance through insurers like ourselves, or funding that risk on their balance sheets. It’s a shame it took so long to get here, and that it effectively required another State intervention, but the picture is far healthier than it was just a few months ago.
And I think we’re all acutely aware of the need for such products right now, because with house price levels continuing to rise, the requirements for deposit saving grows more and more.
Going back to the Nationwide, in May last year, the average price of a UK property was £218,902; a year on that has risen by over £23k. That’s close to an 11% increase, which translated into a 5% deposit requirement means that last year the client needed to have saved £10,945, this year it’s £1,174 more at £12,119. It’s no wonder that those seeking to get on the ladder continue to feel the pressure within an environment where (currently at least) every month means the need for a bigger deposit.
Plus, of course, this isn’t even factoring into the equation the lack of supply and the hugely competitive market first-timers are facing. This market may begin to open up for them a little bit more after the end of the June and September stamp duty deadlines but the anticipation is there will still be a significant amount of demand and they will be competing against many different types of purchasers.
Overall, however, the positive news is the growth in 95% LTV products. We would not be even having this conversation if the levels had stayed as they are – lender appetite has risen, products grow more plentiful and those with a 5% deposit appear to have options. Now, it’s just a question of finding a property to buy and securing it. Easier said than done.
Patrick Bamford is business development director at AmTrust Mortgage & Credit